Our current circumstances are forcing us to re-think many assumptions, some long-held. This applies to the financial world as well, and in particular the realm of estate planning. At the risk of sounding morbid, we all need to consider the plans and provisions for our estate and our loved ones should the worst happen. This is always a subject to be approached with care, but especially so given some of the regulatory changes that 2020 brought with it. In particular the SECURE Act, which went into effect on January 1st 2020, changes estate planning in ways that bear discussion particularly in light of the pandemic. The good news is, with a basic understanding of the SECURE Act coupled with expert advice and guidance, the recent changes and challenges are not insurmountable.
It’s helpful to start with a basic overview of the SECURE Act and the way in which it affects estate planning. Prior to the SECURE Act, estate planners could arrange for their beneficiaries to receive a payout from an IRA or similar retirement benefits over the course of the beneficiary’s expected lifetime. Under the Secure Act, hover, the ability to “stretch” payouts has been removed, and all benefits must be paid to the beneficiary over the course of the 10 years following the plan owner’s death. This results in increased taxation, raising a projected extra $16 billion for the federal government.
There are exceptions to the SECURE ACT, which in turn affect estate planning. While others may exist, the major ones are as follows:
- The spouse of the plan owner may choose to either roll over the plan owner’s IRA to their own or stretch distribution across the rest of the spouse’s lifetime.
- Children who are still minors may stretch distributions until they attain the age of majority, at which point the 10-year rule applies.
- Permanently disabled or chronically ill beneficiaries may choose to stretch distribution.
- A beneficiary with 10 years of age of the plan owner may likewise choose to stretch distribution.
Each of these is an additional consideration in estate planning, as they have long-term taxation and financial implications for the beneficiary.
Complicating all of this is the COVID-19 pandemic. If nothing else, the pandemic serves as a reminder it is never too early to begin the estate planning process. Our lives and the world we live in are fluid and ever-evolving, and as COVID-19 has shown unexpected circumstances with wide-ranging implications can arise fairly quickly. Coupled with the SECURE Act, now may be the time to review your estate planning strategy and adjust the proverbial sails.
Depending on your circumstances, several potential strategies for estate planning present themselves. Examples include rolling your IRA into a brokerage account and arranging for your beneficiaries to receive that instead. This may have some benefits in regards to capital gains tax as the tax basis of the asset adjusts at the time of inheritance. Another possible approach involves establishing a trust in lieu of an IRA. The trust would then name the intended heirs as beneficiaries, which offers many potential benefits if implemented and managed properly. In considering all of this, it’s important to engage with one of the great lessons of the COVID-19 pandemic: expert advice and guidance are critical when making important decisions with long-term implications.
That’s where we come in. At OmniStar Financial our purpose is to illuminate the bright spots for our clients, particularly in challenging times such as these. We firmly believe that a cool, collected mind coupled with expert advice and good planning are the way through the current uncertainty. Estate planning is a complex thing, but it’s never too early nor too late to get started. Get in touch today and we’ll help you ensure that your financial life—including your estate planning—runs as smoothly as possible.